Simple answer? Ad agency business development costs… a lot. A more detailed answer follows.
I recently spoke about ad agency business development (essentially the art of Account Based Marketing) at Hanapin Marketing’s PPC Hero conference in L.A. and did a day long ‘how to pitch’ workshop for a major agency network at their annual meeting in Miami. I came away from both sessions thinking about the high cost of business development.
The True Cost Of Business Development
Since there is no one size fits all answer to what BD costs, I am going to illustrate the cost for a typical medium sized agency. Based on many conversations with agency leadership and the research done for my book on pitching (see the top of this page or just go here to buy it), the cost of participating in a serious pitch can cost close to $100,000. Sounds high, right? But, here is my math.
I am making the assumption that a typical medium size agency responds to 10 RFP’s and participates in 6 serious pitches per year. Of course, your mileage may vary.
RFP’s cost $15,000 to write and produce. This includes both hard and soft costs as in labor and overhead. At 10 RFP’s per year, that’s $150,000.
Pitches are more expensive. Lets go with $35,000 per pitch. If you are an active agency, you’ll do 6 per year at a total cost of $210,000. FYI, I’ve run pitches at Saatchi & Saatchi that cost over $100,000. Not at all happy about that but that is a fact at the huge agencies pitching for huge pieces of business.
OK, back to the mid-size agency. The annual agency cost for RFP’s and pitching is $360,000.
But, there is more and I am going to be very conservative here. I am going with $200,00 per year for the cost of an active business development program itself. That’s the hard costs and the cost of a BD director and significant management time.
The total… $360,000 plus $200,000 = $560,000 or $56,000 per RFP and $93,333 per pitch.
Business Development – A Cost Center Or Opportunity?
The big question at many client companies is whether or not marketing is a cost or a business opportunity. Of course, you tell your clients that it is an opportunity that pays for itself. No marketing, no sales. Well, this is the case at many agencies. They simply do not spend the effort (as in time, investment and planning – oh, and execution) to run smart aggressive business development programs. As both an ex-Saatchi guy and small Oregon agency owner, I am blown away by this.
Over the past few years, I have helped small and medium size agencies create smart aggressive sales plans. The great majority of these clients of mine tell me they have been living on referrals (which, I love by the way — if they are planned) but that the agency eventually runs out of client friends that turn them on to new accounts. The smart agencies say… Whoa! There has to be a better way. The better way includes a deep review of the agency business plan and positioning; a hard look at messaging (I call it wanting to be Unignorable); working with the latest inbound programs and a specific brand-oriented account-based approach to outbound marketing and then a super smart approach to RFP and pitch development.
If you are not taking a highly strategic approach to your agency’s business development program then I propose that you business development program (or lack thereof) will cost you more than $93,333 per pitch because you will not even make it to the pitch, win it or get into the Hall of Fame.
Spend the time and cash to grow your agency. Way too many agencies are caught between hand wringing and having a poorly run BD process – as in no sales effort. Make being Unignorable an objective and invest in it. Or, the true cost of your BD program could be the death of your agency.